What You Need To Know About Enodo Score
Data normalization is redefining commercial real estate. At the forefront is Enodo Score, the Chicago-based startup whose predictive analytics software sifts through dozens of data points on local market factors, value-add opportunities and demographics to accurately assess the risk-adjusted return on multifamily properties.
Chief technology officer Marc Rutzen, director of strategic planning and operations Liviu Peter and data scientist Nicolas Lassaux sat down with Bisnow to talk about the platform.
Bisnow: What does the score mean and how does it reflect a property’s potential value?
Marc Rutzen: The score is the value of future projected cash flows from that property, discounted back to today and at the risk-adjusted ROR you need to earn in that market to make a successful investment. And the score goes a step further by comparing that discounted cash flow of one property versus every other property in the same market, providing a relative ranking of those properties.
Bisnow: Why is that useful?
Rutzen: In real estate, everyone applies their own cap rate and their own investment assumptions, but there’s not a consistent way to account for the risk of the market and the investment itself, and look at that relative to other potential properties and compare them on an apples-to-apples basis.
Bisnow: For whom is this score the most impactful? Can lenders use the score to assess risk, for instance?
Rutzen: To lenders it could be seen as a way to measure the risk of one investment opportunity versus another. We imagine that at some point a lender could use the score and say, “Nothing under an 80 is going to get loans from our organization.” Or, maybe they give loans to riskier assets and they say, “Things in the 40-60 range are our target.”
But, as a quick decision-making tool, it appeals to developers, it appeals to investors; it’s just a quick way to see the relative competitiveness of any asset in any market.
Bisnow: Can users simulate how different value-add investments or market information alter the property’s score?
Rutzen: You are able to toggle assumptions about the market and the property itself and see their impact on the relative competitiveness of the property. You hear from your leasing agent that hardwood floors and granite countertops are huge right now, and everyone wants them. How do you actually quantify what installing them would do to your potential return? We enable you to simply toggle those amenities on and instantly see the impact on rent.
Bisnow: Prior to your first release, what else can the platform predict today?
Lassaux: What we see regularly in real estate is that even if you have the postal address of a property, you don’t necessarily know all of the parcels associated with it. It’s often that a postal address will have 10 different parcels associated with it and it’s not easy to figure that out. So we just made that a seamless process; drop a point on a map or type in the address and you get all the parcels associated with that property, their assessed values, their taxes and the actual street address.
Then there is the comparable property identifier. You pick a lot that you potentially want to build something on, you identify all the characteristics, the unit mix, the number of each type of unit, the square footages, the amenities, and the unit and building levels. As soon as you’ve done that, we enable you to, with a simple click, find the most comparable properties in that market.
Bisnow: How do you maintain your 93% level of accuracy?
Lassaux: We constructed everything with an eye towards collecting metadata, the assumptions that users are making and by testing predictions on historic data and verifying that information with investors, developers and brokers in the industry.
If one person on the platform underwrites a property at a 7% cap and 100 other people get in there and they start underwriting at a 6% cap, [the platform] sets the trend for the 6% cap. It’s looking at the aggregate assumptions of everyone who’s looking at investments and what they believe the market will do.
Bisnow: How do you make sure that all of the data stays secure?
Rutzen: Everyone puts their data into a CRM system, but you never fear that anyone else is stealing your deals based on using a cloud-based CRM. That’s because everyone’s account is completely separate; everything that’s stored in your portion of the database is completely unique to you. We aim to do the same. There’s a public record of that property that is the same for everybody, and then there’s the private record with anything that you’ve done to it. It doesn’t show up on the map for anyone to use; it’s just yours.
Bisnow: Is Enodo Score available in every market in the U.S.?
Rutzen: The platform is available in every market throughout the country. The tax and parcel information is starting only in Cook County, Ill. Rent predictions and the comparable property identifier are nationwide. So, we are debuting tax and parcel information in Cook County before quickly expanding to the entire country.
Bisnow: What's next for Enodo Score?
Peter: We have a pretty comprehensive road map of where we want to go and we’re using the next few months to really double down on the feedback that we’ve received in the market. There has been a tremendous amount of interest in Enodo Score and our goal is to ensure that we’re delivering the value the market expects and using these early adopters in our closed beta to refine the product. As with any startup, we’re very keen on rapidly improving the product based on feedback, managing growth and disrupting the industry.
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